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RATIO ANALYSIS

Financial analysis is the process of identifying the financial strengths and weakness of the firm

by properly establishing relationship between the items of balance sheet and profit and loss

account, in order to make rational decision in keeping with the objective of the organization, for

that purpose the management use analytical tools. To evaluate the financial condition and

performance of the business entity, the financial analyst needs to perform "checkups" on various

aspects of the business financial health.

A tools frequently used during these checkups is a financial ratio analysis, which relates two

piece of financial data by dividing one quantity by the other we calculate ratios because in this

way we get a comparison that may prove more useful than the raw number by themselves. The

business itself and outside providers of capital (creditors and investors) all undertake financial

statement analysis. The type of analysis varies according to the specific interest party involved.

The nature of analysis is depending at the purpose of analyst.

Liquidity Ratios

Liquidity ratios measure the company’s ability to meet its short-term obligations in the short

span of time. There are many ratios of liquidity such as, current ratio, quick ratio and networking

capital. Data is taken from 2010 to 2012 to calculate liquidity ratios of ZTBL.

Current Ratio:

YearCurrent Assets

Current LiabilitiesCurrent

Ratio

20121184699665887460

1.798

201111102457063632110

1.74

201010625915164370348

1.65

Interpretation of Current Ratio:

The current ratio of the ZTBL is slowly increasing from 2010 to 2012. This trend shows that the

bank is able to pay its current liabilities from its current assets. Thus the higher the current ratio,

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the more the bank is considered to be liquid in order to satisfy its short term obligation. It is

depend on the items which comprises the current assets. The major part of current assets of

ZTBL consists of cash, cash with other banks so the lesser current ratio is also considered

favorable.

Quick Ratio:

YearQuick Assets

Current LiabilitiesQuickRatio

20121252506765887460

0.19

20111423290663632110 0.226

20101366235064370348

0.212

Interpretation of Quick Ratio:

Above calculated results shows that the quick ratio of ZTBL is higher in 2010 while lower in

2012. That is why it is not in the favor of the organization. The quick ratio of 1.0 or greater is

recommended for the organizations. But the quick ratio cannot provide a better measure of

overall liquidity only when a firm’s inventory cannot be converted into cash.

Net Working Capital (NWC):

Year T.C.A – T.C.LNet Working

Capital2012 118469963 – 65887460 82582503

2011 111024570 – 63632110 473924602010 106259151 – 64370348 41888803

Interpretation of NWC:

The NWC of the ZTBL from 2010 to 2012 is increasing gradually. It shows that the bank has

positive working capital that can be used to meet its current needs. Because the total current

assets are greater than total current liabilities and the bank is better able to pay its short term

obligation as they become due. So it is favorable for the bank and positive working capital is

always recommended for any organization.

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Leverage Ratios

Leverage ratios, also referred to as gearing ratios, measure the extent to which a company

utilizes debt to finance growth. Leverage ratios can provide an indication of a company’s long-

term solvency. Leverage ratios include debt ratio, total debt to net worth ratio & time interest

earned ratio which are given as under;

Debt Ratio:

YearTotal Liabilities

Total AssetsDebt Ratio

2012104463319131859354

0.7922

201198146493122467960

0.80

201095881306117585949

0.815

Interpretation of Debt Ratio:

The debt ratio provides an indication of a company’s capital structure and whether the company

is more reliant on debt or shareholder equity to fund assets and activities. The debt ratio of the

ZTBL in 2010 is a highest from the rest of the years while lower in 2011&2012. The higher ratio

shows that bank is more rely on the debt that is why considered to be more risky. The high

leverage ratio considered to be unfavorable if the creditors of the bank can start to demand

repayment of debt. Low ratio means bank is more rely on shareholders’ equity instead of debt.

Total Debt to Net worth Ratio:

YearTotal Liabilities

Net WorthTotal Debt

to Net Worth

201210446331927396035

3.81

20119814649324321467

4.03

20109588130621704643

4.41

Interpretation of Total Debt to Net worth Ratio:

If we interpret the debt to net worth ratio of the ZTBL, it is gradually decreasing from 2010 to

2012. The higher the debt to net worth ratio, greater will be the business is considered to be risky

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and consider being unfavorable. The lower the debt to net worth ratio, lower will be the business

is considered to be risky and consider being favorable. The high leverage usually indicates the

business has a lot of risk because it must meet principal and interest on its obligations.

Time Interest Earned Ratio:

YearEBIT

Interest ExpenseTimes InterestEarned ratio

2012109360657046657

1.552

201181036704826511

1.67

201091505366261631

1.46

Interpretation of Time Interest Earned Ratio:

Times interest earned is the ratio of earnings before interest and tax (EBIT) of a business to its

interest expense during a given period. The time interest earned ratio of the ZTBL in 2010 is

1.46 which is lower from the rest of the years, Lower values are unfavorable. The ratio is highest

in 2011 which is 1.67. Higher value of times interest earned ratio is favorable meaning greater

ability of a bank to repay its interest and debt. In 2011, the time interest earned ratio is improved

due to the highest amount of the earnings before interest & taxes as compared to other years.

Profitability Ratios

Profitability ratios measure a company’s performance and provide an indication of its ability to

generate profits. As profits are used to fund business development and pay dividends to

shareholders, a company’s profitability and how efficient it is at generating profits is an

important consideration for shareholders. Following is the interpretation of profitability ratios.

Ratio income before tax

Yearincome before tax

Total assetsRatio income before tax

20123889408

1318593542.94%

20113277159

1224679602.67%

20102877842

1175859492.44%

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Interpretation of income before tax ratio:

The RIBT is the ratio that shows that how much money is retained by the bank before deducting

the money to be paid as taxes. The RIBT is steadily increasing from 2010 to 2012 due to increase

in the amount of total assets and total income before tax. The RIBT in 2010 is lower from the

rest of the year. The Higher the RIBT ratio shows that the bank has good operating performance

without tax implications and efficiently managed its assets to earn a more money.

Income after tax ratio:

Yearincome after tax

Total assetsRatio income after tax

20122589527

1318593541.96%

20112145149

1224679601.75%

20101864286

117585949 1.58%

Income after tax ratio:

Income after tax ratio shows how much money is retained by the bank after deducting tax

expenses. The RIAT is increasing from 2010 to 2012 due to increase in the amount of total assets

and income after tax. The RIAT in 2010 is lower from the rest of the year shows that a bank can

earn less money on more investment. The Higher the RIAT ratio shows that the bank has

efficiently utilize its assets portfolio to earn a more money on total assets.

Return on Assets (ROA):

YearNet IncomeTotal assets

Return on Assets

20123074568

1318593542.33%

20112616824

1224679602.1%

20102269967

1175859491.93%

Interpretation of Return on Assets (ROA):

ROA is a measurement of management performance. ROA tells the investor how well a

company uses its assets to generate income. The ROA is gradually increasing from 2010 to 2012

due to increase in the amount of total assets and total income. It denotes a higher level of

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management performance. The ROA in 2010 is lower from the rest of the year that shows a bank

can earn less money on more investment. The Higher the ROA ratio shows that the bank has

efficiently managed its assets to earn a more money.

Return on Equity (ROE):

YearNet Income

Stock holder equityReturn on Equity

2012307456812522441

24.5%

2011261682412522441

20.89%

2010186428612522441

14.88%

Interpretation of Return on Equity (ROE):

ROE tells the investor how well a company has used the capital from its shareholders to generate

profits. The ROE is reasonable in 2010 then increased in 2011 due to the increase in income

then ROE is sharply increased in 2012 due to increase in the amount of total income and

stockholder’s equity. The highest ROE indicates higher management performance. So the higher

ROE ratio consider favorable while lower ROE ratio, consider to be unfavorable.

Loan to deposit ratio:

YearLoan

DepositLoan to Deposit

20128806042411096956

7.93

2011847437068962457

9.45

201084792594

96027728.83

Interpretation of Loan to deposit:

Loan to deposit ratio tells how much loan is sanctioned by the bank to its customers as compare

to deposits. It is a commonly used ratio for assessing a bank's liquidity by dividing the banks

total loans by its total deposit. The loan to deposit ratio of the ZTBL is lower in 2012. The ratio

in the year of 2010 is 8.83 which is sharply increasing 9.45 in 2011. In 2012 the decrease in ratio

is unfavorable it indicates that banks may not be earning as much as they could be.

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Earnings Per Shares (EPS):

Net IncomeNo. of ordinary shares

EPS

201230745682500000

1.23

201126168242500000

1.05

20101864286

25000000.75

Interpretation of EPS:

A bank’s earnings per share (EPS) ratio allows to measure earnings in relation to every share on

issue. The EPS from 2010 to 2011 is gradually increasing from 0.75 to 1.23 respectively. In

2012, the EPS is increased due to further increase in net income with same amount of total

number of ordinary shares. Higher EPS indicates that as earnings go up over time, the value of

each share of the bank becomes more valuable. However the increase in the number of ordinary

shares in the market will have impact on the EPS.